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The end of Obamacare. An appeal from last week's decisions cannot save it

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Ruminations, July 27, 2014

Obamacare’s all over. Now what?
Last week, two contradictory opinions on Obamacare came from two different appellate courts, which everyone expected would lead to an unpredictable Supreme Court review. But, subsequent to the the courts’ published opinions, additional information became available that all but assures Obamacare’s collapse.

Halbig v. Burwell opinion. Let’s start with the court decisions. In Halbig v. Burwell, The DC Circuit Court, Judge Griffith writing for the majority, focused on “Section 36B of the Internal Revenue Code, enacted as part of the Patient Protection and Affordable Care Act (ACA or the Act)” which made “tax credits available as a form of subsidy to individuals who purchase health insurance through marketplaces -- known as “American Health Benefit Exchanges,” or Exchanges” for short -- that are “established by the State.” But, while the IRS made subsidies available to all Act participants, whether they purchased insurance through a state or federal exchange, the Act, according to the majority, “unambiguously restricts the … subsidy to insurance purchased on Exchanges ‘established by the State.’” Therefore, according to this line of reasoning, health care purchased by participants in any one of the 36 states that do not have a state exchange, are not eligible for subsidies and, since many of these folks may not be able to afford health insurance, the Act will fail.

The majority went on to find that “The ‘premium assistance amount’ is based on the cost of a ‘qualified health plan … [and one] enrolled … through an Exchange established by the State … is covered by a qualified health plan . . . [and] was enrolled in through an Exchange established by the State.” Since there are 36 states that have not established exchanges, they cannot qualify any health plans and without any qualified health plans the participants are not eligible for assistance

But there’s more. “The IRS Rule,” the court said, “affects the employer mandate in a similar way. Like the individual mandate … the ACA penalizes any large employer who fails to offer its full-time employees suitable coverage if one or more of those employees ‘enroll . . . in a qualified health plan with respect to which an applicable tax credit . . . is allowed or paid with respect to the employee.’ Thus, the court ruled, the employer mandate’s penalties hinge on the availability of credits.” And since the court has already ruled that credits are not available in the 36 states without exchanges, it exposes employers to penalties.

Further, the DC court relied on the Act’s definition of “qualified individuals” (i.e., qualified for subsidies among other things). It said that “’qualified individual’ means, with respect to an Exchange, an individual who … resides in the State that established the Exchange. … If this provision is given its plain meaning, then the 36 states with federal Exchanges (that, obviously, the states did not establish) have no qualified individuals.”

Judge Randolph, concurring, rejected having the text of the Act be amended by the court to conform to the government’s desires. Citing noted jurist Louis Brandeis, Randolph wrote: “In the meantime, Justice Brandeis’ opinion for the Supreme Court in Iselin v. United States is controlling: ‘What the government asks is not a construction of a statute, but, in effect, an enlargement of it by the court, so that what was omitted, presumably by inadvertence, may be included within its scope. To supply omissions transcends the judicial function.”

Halbig v. Burwell dissent. It looks like a good argument but let’s note that the decision was decided 2-1 and we need to consider Judge Edwards’ dissent. Edwards’ opening remarks are telling. His first sentence reads: “This case is about Appellants’ not-so-veiled attempt to gut the Patient Protection and Affordable Care Act (‘ACA’).” What difference does that make? The decision should be based on law not on what the plaintiffs are attempting or not attempting to do. Clearly, Edwards opens with a political statement.

He goes on to assume that he know the intent of each member of Congress. “It is inconceivable that Congress intended to give States the power to cause the ACA to ‘crumble.’” Next comes a key part of the rationale for his dissent. Edwards says: “Appellants attempt to fortify their position with the extraordinary argument that Congress tied the availability of subsidies to the existence of State-established Exchanges to encourage States to establish their own Exchanges. This claim is nonsense, made up out of whole cloth. There is no credible evidence in the record that Congress intended to condition subsidies on whether a State, as opposed to HHS, established the Exchange…. Congress, [the appellants] assert, made the subsidies conditional in order to incentivize the States to create their own exchanges. This argument is disingenuous, and it is wrong.” Hmm. This line of reasoning will come back to bite Edwards (see below).

King v. Burwell decision. In King v. Burwell, Judge Gregory writing for the unanimous court admitted that the court found the “applicable statutory language is ambiguous and subject to multiple interpretations.” In order to reach a decision, the court deferred to “the IRS’s determination” and upheld “the rule as a permissible exercise of the agency’s discretion. The IRS Rule provides that the credits shall be available to anyone ‘enrolled in one or more qualified health plans through an Exchange,’ and then adopts by cross-reference an HHS [Health and Human Services] definition of ‘Exchange’ that includes any Exchange, ‘regardless of whether the Exchange is established and operated by a State . . . or by HHS.’” There are two things to note about this ruling: (1) this definition is not part of the Act but a rule written by IRS. (2) IRS had been worried about the lack of reference to the federal exchanges throughout the ACT and specifically requested HHS to provide them cover by creating this definition.

“An IRS explanation” the court said, “submitted to the court states ‘does not demonstrate that Congress intended to limit the premium tax credit to State Exchanges.’” (There’s that pesky “intend” again. If Congress intended something, why didn’t they write it in the Act? But I digress.)

The court went on to cite a decision regarding Chevron. “At Chevron’s first step, a court looks to the ‘plain meaning’ of the statute to determine if the regulation responds to it. ... If it does, that is the end of the inquiry and the regulation stands. ... However, if the statute is susceptible to multiple interpretations, the court then moves to Chevron’s second step and defers to the agency’s interpretation so long as it is based on a permissible construction of the statute … [and] determines whether Congress’s intent in enacting it was so clear as to foreclose any other interpretation.” Again, the court relies on its perceived evaluation of Congress’s “intent.” And then it states that Congress’s intent must be “so clear as to foreclose any other interpretation” contradicting one of their previous statements, that the “applicable statutory language is ambiguous.” How can intent be clear if the language is ambiguous?

The court concludes that “having examined the plain language and context of the most relevant statutory sections, the context and structure of related provisions, and the legislative history of the Act, we are unable to say definitively that Congress limited the premium tax credits to individuals living in states with state-run Exchanges.”

Enter Jonathan Gruber. Gruber, a Harvard economist via MIT, is well-versed in health care. In fact, his 1992 Ph.D. thesis was entitled Changes in the structure of employee-provided health insurance. He was a key architect of Massachusetts’ Obamacare forerunner. And, he was an architect of Obamacare.

Now, let’s put into perspective exactly how our nation’s laws are written. The Democratic members of Congress passed the Act unanimously but they did not write much of it. Politicians have more important things to do than write a 2,400-page law with all its attendant rules and regulations. Congress, which dictates things it wants to see in a bill, concedes the actual writing of the law to staff and “architects.” Gruber was one of the writers/architects of the Act.

So that established Gruber’s bona fides as someone who knows the Act well and, perhaps, can speak to its intent.

Subsequent to the court rulings, a 2012 videotape of Gruber surfaced in which he described subsidies and state exchanges. "Yeah,” he said, “so these health-insurance Exchanges … will be these new shopping places and they’ll be the place that people go to get their subsidies for health insurance. In the law, it says if the states don’t provide [Exchanges], the federal backstop will. The federal government has been sort of slow in putting out its backstop, I think partly because they want to sort of squeeze the states to do it. What's important to remember politically about this is if you're a state and you don't set up an exchange that means your citizens don't get their tax credits -- but your citizens still pay the taxes that support this [Act]. So you're essentially saying [to] your citizens you're going to pay all the taxes to help all the other states in the country. I hope that that's a blatant enough political reality that states will get their act together and realize there are billions of dollars at stake here in setting up these exchanges.” (There is also an audio clip of Gruber saying much the same thing at the Jewish Community Center of San Francisco, January 10, 2012.)

Remember the DC Court’s dissenting Judge Edwards? His dissent, in part, said “the extraordinary argument that Congress tied the availability of subsidies to the existence of State-established Exchanges [was] to encourage States to establish their own Exchanges. This claim is nonsense, made up out of whole cloth. There is no credible evidence in the record that Congress intended to condition subsidies on whether a State, as opposed to HHS, established the Exchange…. Congress, [the appellants] assert, made the subsidies conditional in order to incentivize the States to create their own exchanges. This argument is disingenuous, and it is wrong.” Few judges’ arguments have proved wrong so quickly. If Edwards’ political bent outweighs his judicial temperament, he will be unlikely to change his mind.

And the 4th Circuit Court concluded, “we are unable to say definitively that Congress limited the premium tax credits to individuals living in states with state-run Exchanges.” Well, after listening to architect/writer Gruber, they may want to change their minds.

Now what? It seems that the Act cannot stand. With the evidence available, it seems that judges cannot avoid voiding the subsidy and thus cutting the financial underpinning of Obamacare. The logical approach would be to go to Congress and ask for a new or revised act. This would mean asking for a bipartisan bill, something the Obama Administration has been loath to do. But, hey, you never know. Necessity is the mother of a first time for everything (excused the mixed maxim).

Quote without comment
Supreme Court Justice Antonin Scalia and Bryan A. Gardner, writing in their 2012 book, Reading Law: “Legislative intent is a fiction, a back-formation from other and often undisclosed sources. Every legislator, has intent, which usually cannot be discovered, since most say nothing before voting on most bills and the legislature is a collective body that does not have a mind; it ‘intends’ only that the text be adopted and statutory texts are usually a compromise that match no one’s first preference.”

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